* Defamation lawsuit moves to South Dakota state court
* Beef Products says ABC reports hurt reputation, sales
* ABC News plans to seek dismissal of $1.2 billion lawsuit
By Jonathan Stempel
June 12 (Reuters) - A South Dakota meat processor that sued ABC News over a series of reports that called its signature product "pink slime" has won the right to move its $1.2 billion defamation and product disparagement lawsuit back to the state court where it began.
Wednesday's decision to move the case by U.S. District Judge Karen Schreier in Sioux Falls, South Dakota, is a defeat for ABC News, a unit of Walt Disney Co, and returned the lawsuit by Beef Products Inc (BPI) and two affiliates back to the Union County Circuit Court in that state.
Schreier said state court was the best place to handle the lawsuit in light of where the various plaintiffs and ABC defendants were incorporated. She did not rule on the case's merits.
Schreier said state court was the best place to handle the lawsuit in light of the lawsuit could be heard in state court
Defendants sometimes prefer to fight lawsuits in federal courts, where procedures are more standardized and where the prevailing law may be more favorable.
"This is purely a decision on what court will hear the case," an ABC spokesman said. "The court stated that ABC and the other defendants have the right to move to dismiss the case in the state court, and ABC intends to do just that."
Erik Connolly, a partner at Winston & Strawn in Chicago representing BPI, said: "We look forward to presenting our case in state court."
BPI had last September sued ABC, news anchor Diane Sawyer, reporter Jim Avila and other defendants, accusing ABC of harming its reputation and costing sales by mischaracterizing its "lean finely textured beef" product in reports last March and April as "pink slime."
The company and its BPI Technology and Freezing Machines affiliates have sought $400 million representing projected lost profit, a sum that could be tripled under South Dakota's Agricultural Food Products Disparagement Act.
Lawyers for ABC countered in court papers that the lawsuit was a meritless attempt to inhibit free speech, and that the "pink slime" term was the kind of "hyperbolic" language that courts routinely protect under the First Amendment.
To keep the case in federal court, ABC argued that BPI Technology and Freezing Machines were not "real parties in interest."
That would have left only BPI, which is incorporated in Nebraska, suing ABC, which is incorporated in Delaware, creating a "diversity" of U.S. states.
Such diversity would have been lost if BPI Technology and Freezing Machines, which are both incorporated in Delaware, remained in the case.
But Schreier said South Dakota law "entitled" BPI Technology to pursue its defamation claim, regardless of its merit.
She rejected what she called ABC's request that she first review whether the claim might be successful before determining whether she had authority to make such a determination.
"That is putting the cart before the horse," Schreier wrote.
BPI is the largest U.S. producer of lean finely textured beef, a low-fat product made from chunks of beef including trimmings, and exposed to tiny bursts of ammonium hydroxide to kill E. coli bacteria and other contaminants.
The Dakota Dunes, South Dakota-based company's beef was once routinely used in fast-food hamburgers and in packaged ground beef sold at grocery stores.
But after the ABC reports, some restaurants and retailers including Wal-Mart Stores Inc and Safeway Inc stopped selling ground beef that contained the product.
The U.S. Department of Agriculture and industry experts have called the meat safe.
BPI closed three of its four plants and cut about half of its 1,300-person workforce in the wake of the media coverage.
Other defendants in the case include a former Agriculture Department microbiologist credited with coining the term "pink slime" in a 2002 email to colleagues.
The case is Beef Products Inc et al v. American Broadcasting Cos et al, U.S. District Court, District of South Dakota, No. 12-04183.